What is Probate?

By Attorney Truman Scarborough

This is the third in a series of articles on probate. We have been looking at the “Formal” probate process which is required when the decedent died within the last two years and the value of the assets is over $75,000.

When someone dies, assets titled just in the decedent’s name without beneficiaries are frozen. No one can sign the deceased person’s name on checks, deeds, etc. A Power of Attorney does not help since it is effective only while the creator is living. It is similar to an employer-employee relationship. If an employer goes out of business there are no employees.

The process where a property is transferred from the decedent’s name to the beneficiaries is called “Probate”. The court creates a legal entity (like a corporation) called the “Probate Estate” and appoints a Personal Representative (executor) to administer the estate. Step-by-step the Probate Court must be shown that everything is proceeding as required by Florida Statutes and Florida Probate Rules. The word “Probate” essentially means “to prove.” You may know that there are no problems with beneficiaries or creditors, but the court does not.

In the last article, we looked at the Personal Representative’s (executor’s) responsibilities to beneficiaries and creditors. We will now look at the Personal Representative’s responsibilities for taxes and expenses for administration.

TAXES: The Personal Representative must file the decedent’s 1040 Income Tax Return for income received by the decedent while he/she was living. Income received after the decedent’s death is not reported on the 1040 Income Tax Return but on a separate 1041 Fiduciary Income Tax Return. To do this the Personal Representative obtains a tax identification number called an EIN from the IRS. For the portion of the year when the decedent was living, 1099s will show the decedent’s social security number. Income earned after the decedent passed away will show the EIN. A 1041 Fiduciary Income Tax Return is filed for income received under an EIN. There is a substantially higher tax rate on 1041 than on an individual 1040 return. To avoid the higher tax rate, income can be distributed to the beneficiaries. These distributions are shown on Schedule K-1s, so the income can be reported by individual beneficiaries on their own 1040 tax returns, rather than on the 1041, avoiding the higher tax rate.

For large estates, the Personal Representative may also have to file a 706 Estate Tax Return. The Tax Cuts and Jobs Act passed in December of 2017 doubled the amount an individual can gift during his/her life and at death. An individual can now pass $11,180,000 before there is any tax. For a couple, it is $22,360,000. If the first spouse to die has not used his/her full $11,180,000, the unused balance is available to the surviving spouse.

ADMINISTRATION EXPENSES: The Personal Representative will incur various expenses including attorney’s fees. Florida Probate Rules require that every Personal Representative be represented by an attorney unless he/she is the sole interested person. The Florida Statutes show a fee for the attorney as well as the Personal Representative of 3% for estates between $100,000 and a million dollars. There are also court filing fees and the cost of publishing Notice to Creditors in the newspaper.

In the next article, we will look at a simplified form of probate called Summary Administration.

For further information on estate planning, you may be interested in Attorney Truman Scarborough’s Booklet on Estate Planning in Florida. It is available without charge or obligation by calling (321) 267 – 4770. His office is located at 239 Harrison Street, Titusville, Florida.